The economic fundamentals that drive M&A are back at pre-crisis levels, states a new survey published by KPMG. The number of acquisitions that companies will undertake is expected to increase in 2015: 82% of respondents plan at least one acquisition and 10% anticipate 11 or more acquisitions next year.
Indeed, the survey suggests M&A is an attractive growth strategy for the upcoming year since financing conditions are favourable and organic growth prospects appear to be limited. Fundamental M&A drivers such as healthy credit markets, large cash reserves and steady job growth rates are aligning and ready to light up deal activity in 2015.
As we discussed in a previous blog post, growth by way of acquisitions is increasingly being viewed by potential acquirers as a vehicle enabling them to expand into new geographical markets or enter into new lines of business. What’s more, companies looking for exit strategies generally prefer selling to a strategic buyer rather than attempting to raise equity or debt or undergoing an initial public offering.
The survey also reports that deal values are expected (on average) to increase in 2015, with 27% more survey respondents than in KPMG’s previous annual survey expecting average deal values to be above $250 million. Bigger deals are on the horizon and the study shows that investors are becoming more selective and willing to pay a premium for high quality targets.
Industry-specific challenges and opportunities
The KPMG survey predicts that the most active industry sectors will be healthcare/pharmaceuticals/life sciences and technology/media/telecom.
Executives surveyed in these sectors cited the valuation disparity between buyers and sellers and the identification of suitable targets as the most challenging aspects of planning an acquisition. Life sciences respondents also cited regulatory issues as a source of difficulty, while those in the technology sector were more concerned with post-deal execution strategies.
The author would like to thank Carole Gilbert, articling student, for her assistance in preparing this legal update.